President Obama proposed the new “Buffett Rule” in his state of the Union Address, which was a minimum tax of 30% for everyone making over a million dollars.
This is a ridiculous idea, but I have not heard conservative politicians attacking this proposal head on the way it should be. The first problem is if we are going to change the tax code we should look to making it simpler not more complex. If Obama feels taxes are too low, as he clearly does, he should have the courage to discuss the reasons some people who make more money pay a lower effective rate than others with the same family situation. There are three obvious ones, capital gains tax rates, deductions, and exclusions for municipal bonds. I plan to examine these here.
Before we start, let’s look a little at the reason given for this new rule “fairness.” The implication was that Buffett or Romney pays a much lower rate than average people. This is clearly not true since 47% pay no taxes or even have a negative tax rate. This is the biggest “fairness issue” and it is bad to have so many that pay nothing, not that I think that should be changed now. According to 2009 tax data 87% of tax filers paid a lower percentage of their income in taxes than Romney. So without even looking any further the bottom 85% would have no fairness issue to complain about.
Next we need to look at the major reason for the lower rate for people like Buffett or Romney, which is the lower rate on capital gains of 15% for people with high incomes. It is important to note that Democrats have cut capital gains taxes. Bill Clinton cut them in 1997 and Barrack Obama proposed a capital gains tax cut for small businesses.
Thus, it is recognized by both parties that lower capital gains tax rates are good for the economy. Next, we should note that without any changes the capital gains tax rate goes to 20% next year under current law. Since Harry Reid and the do-nothing Democrat Senate are unlikely to accept any reasonable deal this year, we should not worry about “fixing” anything for just this year.
Again, looking at 2009 tax data, 95% of all tax filers would have a tax rate of less than 20%. Based on that data, only the richest 5% of income earners have a right to complain. However, this forgets that the capital gains tax is part of a double tax and only half of the story. The corporations Romney invested in paid corporate taxes before Romney collected his gain. Tax rates average around 25% for all corporations.
After considering the double taxation issue, there is no “tax fairness” issue at all for Romney or Buffett. Even the study that I saw that suggested increasing capital gains taxes suggested doing so in small increments to avoid a significant drop in revenues - not doubling them. In addition, many studies indicate that raising capital gains taxes will collect the same or lower amounts of money, after the negative effects on the economy are considered. I do not think it is smart to raise taxes to chase some misguided sense of “fairness” to only collect less in revenues. Obama clearly does think that way.
For the case of municipal bonds, it is not so much a break for rich taxpayers as it is a subsidy on borrowing for local governments. High income people chose to take a lower interest rate to save money on their taxes. Both get a benefit. With many local governments in debt and struggling, I do not think it is a good time to remove this subsidy on their borrowing. If we did this it should be phased in over time and done when there is a solid recovery.
As for deductions and credits, I think in general many should be eliminated for all. These are common ways for politicians to give gifts to donors or favorite constituencies. Most should be eliminated except a few like home mortgage interest, charitable contributions, and other taxes paid. For rich people the charitable contributions deduction is the one that results in the lowering of their taxes paid. If this concerns Obama he should propose capping the amount that can be deducted and lower the top tax rates.
Obama knows all this, so I have to assume he is just another dishonest politician. I heard all of his tax increases don’t come close to paying for his suggested spending increases. He has been claiming that the 30% rate is what people paid under Reagan which is inaccurate. After Reagan was finished the top rate was 28%, so nobody averaged 30% in income taxes paid.
Again, this is part of his class warfare reelection strategy. Use people’s emotions of envy and greed to get them to forget he has no solutions for any of our real issues, and to forget his miserable record. He also is not serious about working to change anything this year due to the second part of his strategy of running against Congress. Harry Reid and the do nothing Democrat Senate has gone over 1000 days without passing a budget. Reid will only bring items that have to be done or ones they have the votes to shoot down.
They will not vote on many items the house passes or will pass, that many Democrats would feel they should vote for. That is why Obama chooses the ridiculous number of 30% and moronic way of dealing with what he thinks is the issue. He does not really want to fix it, just complain about it. So let drop the divisive class warfare rhetoric, phony “fairness issue”, and get serious about the important issues.
Any reform of entitlement usually ends up being renamed and rears it's ugly head in another way. If it hasn't- then you just haven't waited long enough. Even proud people have no problem accepting a gift from the IRS, make them wait in line and apply for it in a Gvt. office and things are different. Obama has had 3 years and has done nothing but promise to spend more than we have. Another four years of BO, and we won't have a snowballs chance for recovery.
Second, where are you getting that figure? $10,000 on an earned income of $15,000? How many children? How many wage-earners in the family -- one or two? And somebody was getting far too much of the paycheck withheld in the first place.
Last year their Federal return was above $10,000. This is significantly higher than the withholding.
I think Rep. Paul Ryan said it best: Our country was founded on the basis of fairness of opportunity, not fairness of outcome (a short definition of communism). Communism on a large scale has never worked and simply can't; personal initiative, effort, etc. are thrown under the bus and the result is anything but fair. Seems to me "fairness" is only achieved through fairness of opportunity. Many favor fairness of outcome, which is their personal right. A nation's leaders should put the needs of the nation ahead of personal leanings. Our tax system is a mess of rules, some which attempt the former while others try to achieve the latter. When one waives all the political rhetoric aside, the conflict between the two "fairness objectives" explains why no agreement has been reached. Wish it could be . . . I happen to believe "trickle-down" works, and always has. When people have more money to spend, they will; when they don't, they won't. Call it anything you like, but that sure sounds like trickle-down to me (but what do I know?). A simple tax system sounds great, but until we agree on which version of "fair" we want, it won't be "fair."
If we had fairness of outcome, everyone would be paid the same. There would be no reason to take risks to better yourself. There would be no reason to be a good employee, a hard worker, or to become better. Students have fairness of opportunity. Those who try and achieve- usually have beter grades. Under fairness of outcome, every student would get a C- regardless of homework and test scores. This in turn would inhibit the achievers from trying, and reward those who do nothing....afterall, everyone gets the same grade.
I was struggling to put an answer to this as whole papers have been written on the subject. Your answer, in my opinion, pretty much nails it. I think our greatest problems as a nation occur when we confuse these two.
A few days ago, James R. Hoffa was saying how a person could make $24K a year by working two minimum wage jobs for 65 hours a week and then have money to save. (That person would have to be living in his parents' basement to have money left over, but that's beside the point.) How many years would it take that theoretical person to save enough money to start a business and become wealthy? As opposed to Mitt Romney's $57K a day for not working? Sure, Mitt worked, possibly even 65 hours a week back in his Bain days, but I daresay his father's wealth put him through Harvard and the fact that he was George Romney's son counted just a little in his getting hired. No one is asking for fairness of outcome -- just a little less stacking of the deck when it comes to opportunity. That means taxing the person who's trying to save money on $24K and year a little less and $57K a day Mitt a little more.
Small business loans are actually easier for a minority to obtain. My point was not about financial backing though- mainly I was talking about desire. If there is enough desire to start a business; and you are willing to work hard to do so, it can be done. For example: A man loses his job. He is not from a wealthy family. He has gone to night school for years and still was let go. He wants to open a small business but can't get financial backing from family or in the form of a loan. Cashing out his 401(k) would severely cut into his spending ability. Forming a Corporation, and rolling his 401(k) into shares of that corporation avoids taxation. He is able to purchace the equipment for his business from that. He now own three positive cash flow laundramats. Sure, he could not do it overnight like a son of a wealthy family might. I did not mean that rich people do not have advantages over the rest of us. I guess it all depends on how you see it. But the point is there is risk involved, and if you take the risk- sometimes there is great reward. To some, it is not worth it. Some have failed and regret the risk taken. Some were successful and would do it again.
Desire and hard work are not genetic, it knows no racial, or socio- economic boundaries. Success may be to move from a minimum paying job to a business that pays the owner a middle class living. The deck may be stacked against those less fortunate. I have always viewed the deck as stacked against the past generation- my job is to be a stepping stone for those to come by providing for my kid to be on the next tier.
Until we move past the envy of those more fortunate, and use that as a motivation, many people just will give up. I haven't given up. I am a realist though. I know I will not be the 1%, but maybe if I work hard enough...my legacy will get there.
With my own children I have given them the gift of education, a strong moral compass, a sense of justice and empathy, now it is up to them to move forward and adapt to the challenges they will face in their lifetime. People who do not work for what they achieve, are by necessity, weaker examples of our species. My approach is to give children what they need and not what they want or more importantly what you want.
But... You can't attribute a specific income to wealth. A family earning $20,000 a year thinks those making $50,000 are rich, and so on... There are a significant number of people who do not even know they are wealthy. Many do not understand they would not run out of money if they lived to be 150 years old. Though that is the last generation of savers, and they are dying off. I understand I can not build a space shuttle myself. I do know that I can build a part of it, but not all- that is the realist in me. The realist in me also knows that I can't become a 1% er in my lifetime. My being a realist lets me accept making a better life for myself than my parents had, and making my children's lives better than mine. This is partly why my wife and I decided one child was enough. Our lifes work has been to give her the moral compass and education that we wish we had. While we may have only climbed a step or two on the ladder, we have created an opportunity for our kid to take a few more steps. (Hopefully several)
I never really wanted to be wealthy like the 1%, I just wanted to be comfortable. Being human makes us desire more, learning to accept less than 'everything' is a learned quality. I can remember my dad when I was a kid saying look at that fool: all his money and all his expensive glitzy toys, and he hates the world...crabby SOB.
When my kid was little, she used to say how much she liked her friend's mansions (some were quite nice), my answer to her was this: It is okay to like something others have, or even dream of it for yourself one day. But make sure you put yourself in the position to earn it on your own. Don't hope to win the lottery, marry a rich man, or inherit the means to get it- you have to do it yourself. I am not in favor of putting the sick and old out with the trash at night to die, we should take care of them.
1. A link to a Newsbusters story. Newsbusters is a project of the discredited Media Research Center, which is run by Brent Bozell. Bozell has a history of racially insensitive comments including his calling President Obama a "skinny ghetto crackhead". 2. A link to the Heritage Foundation. The Heritage Foundation is a conservative think tank which is funded by every dog-whistle conservative funder in the nation including the Bradley Foundation, the Coors Family, the DeVos family and yes...the famous Koch Brothers. 3. A link to a Paul Ryan interview on Fox News. A fluff piece of unchecked opinions from a biased news organization. Here's the deal, if you want to have a serious discussion like a grown-up, let's use some serious sources. Until then, your submissions are nothing more than bad opinion pieces that have zero merit.